Exports slowdown: Experts discuss whether worse to come

According to him, labour intensive sectors show negative growth and employment intensive sectors in exports are not doing well.

“I think the fundamental factor is that most of the labour intensive sectors are losing their competitiveness over a period of time and immediate factor definitely is the liquidity problem which has been caused by the goods and services tax (GST) refund,” he said.

He further mentioned that we have requested government to go for clearance on the debt side.

Only 30 percent of the fund has been refunded out of the re-imbursements submitted by exporters, he added.

Ravikumar of Bajaj Auto said that we have a fairly good standing in exports.

Below is the verbatim transcript of the interview.

Sonia: Exports have slowed down considerably over the last three to four months where does the problem lie and do you expect further deceleration as far as export growth is concerned?

Sahai: If you look at export growth figure they look pretty impressive on the face of it, but if analyse they also show that everything is not good with the export growth. The very growth rate is coming down from 30 percent to 12 percent and now to 9 percent. Secondly, this 9 percent growth has come because petroleum exports have done exceedingly well. Out of total 9 percent growth 6 percent has been contributed by the petroleum sector.

On the contrary, the labour intensive sectors whether it is carpet, handicraft, textile, apparels they are showing the negative growth. There is little modest growth in gems and jewellery as well as in leather sector and that is why I think it is cause of concern because our employment intensive sectors in exports are not doing well which is definitely, a challenge. They are couple of factors, I think the fundamental factor is that most of labour intensive sectors are losing their competitiveness over a period of time.

An immediate factor definitely is the liquidity problem which has been caused by the Good and Service tax (GST) refund. We hope that and in fact we have already requested the government to go for a massive clearance drive and clear these backlog by March 31st.

Latha: Although we have seen a fairly decent growth in global trade and countries like Korea are growing their exports at the highest paces in several years, at 22-23 percent despite a high base, India is not taking advantage of the global trade, any thoughts?

Ravikumar: I think the country level and global level trade movements I will leave it to the experts to analyse. I can talk only about two and three wheeler industry and specifically about Bajaj, basically because Bajaj is the largest three-wheeler exporter. Every three out of four three-wheelers are exported by Bajaj and similarly every two out of every three two-wheelers, motorcycles are exported by Bajaj. So, we have a fairly good standing in exports. But that said, I can talk about our company and the outlook there.

Latha: Our purpose for this discussion was to find out what is really worrying Indian exports, aside from your company, the general export growth has only been 9 percent, import growth has even touched 40 percent in some months and certainly running at an average rate of 25-30 percent. So, clearly, probably even what we can buy from India we are buying from abroad maybe because of a breakdown in supply chain, we don’t know. So, we really want to see what is troubling exports and not what is going right because something seems to be troubling. What is your view, is it that we are in many areas like you pointed out readymade garments and some other sectors, even gems and jewellery has been flat to negative, is it a productive issue or is it a liquidity issue?

Sahai: I primarily feel that this is basically a productivity issue. Let us reconcile to the fact that wage arbitrage is no longer with India. Countries in South Asia and South East Asia including Cambodia, Myanmar, Laos, Bangladesh, Sri Lanka, Pakistan they are in fact having lower wages than us. So I think a lot of this has to do with the scaling of worker. Unfortunately, we have not seen much movement on that though of course we have National Skill Development Mission, but I personally feel there is need for industry-government partnership so that we skill the worker in the areas where the jobs are required in the industry.

Of course, the currency is also putting some pressure on that. We have seen that Indian rupee has appreciated as against the devaluation of most of the currencies. Thirdly, I think liquidity is also an issue which I have already highlighted. The cost of credit is definitely a challenge for Indian exporter to some extent. The SME’s manufacturers have been provided interest equalisation, but I think similar facilities needs to be extended to the merchant exporters who contribute to around 30 percent of exports and even the service exporter because cost of credit is equally important to them as well.

Latha: Cost of credit all the while was the same. I mean it is not that cost of credit suddenly has gone up. Indian exporters say four-five years ago when global trade was doing well we did manage 23-24-25 percent export growth. We have averaged closed to 30 billion in some months. But this fall in closer to 20 billion a month has happened more lately despite global growth. I mean is this a GST thing, that supply chain has broken and that will be put back or is there something more long term as you are putting out that we have permanently lost to the competition?

Sahai: I will say that GST is one of the factor, you have rightly said, in the past with the same credit rate we have done exceedingly well. But in those time Indian rupee devaluation has supported the export sector. Let us also recognise the fact that in most of the sector we are in very price sensitive segment. So, the rupee movement definitely affects the exports and that is why the long term solution may lie integrating into the global value chain putting focus on branding which can take away on that. But the fact of the matter is that when you are profit is coming down even a little factor like interest rate affects you definitely.

Sonia: When we spoke with you the last time you had said that with respect to GST a lot of the tax refunds were getting blocked post GST coming on board. We also have other issues like E way bill which is affecting certain sectors like carpets, textile etc. Your own thoughts on any of these issues have been resolved since the last time we spoke or do you think these are problems that will continue to persist?

Sahai: I think these are issues which has been flagged with government. Unfortunately, we have not been able to make much headway as per the figure which has been shared with us. In respect of the I-GST refund only 30 percent of the refund which has been filed has been cleared and in respect of the ITC the problem is more acute because out of close to 80,000 application which has been filed online only 4,000 application couldn’t have been submitted manually and that is why that speaks volumes of efforts need to done at the government.

Why an exporter who files an application online and debit his electronic register will not file application manually. The fact of the matter is that the tax authorities are simply ignorant, they has not been any detailed procedure which has been devised by the government and exporter is running from pillar to post to file an application manually. We have initially pointed out that manual application will create a problem and the fact of the matter is that this is adding to the problem at the end of the exporter.

Latha: You are not getting any of the input credit now or not easily?

Sahai: I am not saying I am not getting it, but that is the only you can say a fraction of what we have already applied for that

Latha: You are the one who doesn’t have the productivity challenge so do you think that this is a problem only for some sectors of exports and where you have international standards, there isn’t the problem whatever the price of credit?

Ravikumar: Number one is of course productivity is not a problem for us like you mentioned. I will agree with Ajay Sahai that the currency can which was much more supportive in a different trajectory couple of years back that has reversed and that can really cause lot of trouble even going forward. Look at the way the oil is going firming up.

The second thing is same way, the interest outlook couple of years back was different and the interest outlook today is very different and these two things coupled with the input cost base metals, aluminium today is USD 2200 plus and only a few months back, about a year back or something like that we are talking about USD 1,400 to a tonne. So I think input cost firming up, oil prices firming up, the currency - the interest rates firming up these are all realities that are starkly facing us.